a

GAO

United States General Accounting Office

Testimony

Before the Committee on Governmental Affairs, U.S. 

Senate

For Release on Delivery

Expected at 10:00 a.m. EDT

Wednesday, April 28, 2004

PURCHASE CARDS

Increased Management 

Oversight and Control 

Could Save Hundreds of 

Millions of Dollars

Statement of Gregory D. Kutz

Director, Financial Management and Assurance

David E. Cooper

Director, Acquisition and Sourcing Management

John J. Ryan

Assistant Director, Office of Special Investigations

GAO-04-717T
Governmentwide efforts to promote increased usage of purchase cards for 

small and routine purchases have dramatically increased the number of 

purchase card accounts and spending. The use of a well-controlled purchase 

card program is a useful tool in streamlining the government’s acquisition 

processes and providing agencies flexibility to make small and routine 

purchases. However, improvements in program management and oversight 

could save hundreds of millions of dollars by (1) strengthening controls and 

monitoring transaction activity to minimize fraudulent, improper, and abusive 

purchase card transactions and (2) leveraging the government’s buying power 

to achieve discounts with frequently used vendors. 

GAO’s audits of purchase card controls at DOD and four civilian agencies and 

federal agency Inspectors General audits identified ineffective management 

oversight and weak internal controls, leaving agencies vulnerable to 

fraudulent, improper, and abusive purchase card activity. GAO’s data mining, 

forensic audit follow-up, and investigations identified numerous purchases of 

personal items such as jewelry, designer leather goods, clothing, stereo 

equipment, food, and entertainment. While agencies responded to these audit 

reports by issuing and updating purchase card policies and procedures, GAO’s 

work at DOD demonstrated that little disciplinary or administrative action was 

taken against those who made improper or abusive charges. 

GAO also found that agencies generally did not take advantage of 

opportunities to obtain more favorable prices on purchase card buys with 

frequently used vendors—vendors where an agency spends more than 

$1 million annually. GAO’s examination of six federal agencies that account 

for over 85 percent of federal government purchase card spending identified 

isolated examples of agencies negotiating discounts for items such as office 

supplies and technology purchases. However, a conservative approach 

indicated that if the six agencies obtained discounts of only 10 percent from 

vendors where they spent more than $1 million a year, annual savings of up to 

$300 million could be achieved without sacrificing the ability to acquire items 

quickly or compromising socioeconomic goals. As shown in the following 

table, during fiscal year 2002, these agencies spent nearly $3 billion with 

frequently used vendors. 

Amount Spent in Fiscal Year 2002 with Frequently Used Vendors (in Millions)

Defense $1,614 

Veterans Affairs 822 

Agriculture 72 

Justice 154 

Interior 85 

Transportation 74 

Total $2,821 

Source: GAO analysis. 

From 1994 to 2003, the use of 

government purchase cards 

increased from $1 billion to $16 

billion. During this time, agencies 

primarily focused on ways to 

increase the use of purchase cards. 

Beginning in 2001, GAO testified 

and reported that significant 

weaknesses in internal controls 

made agencies vulnerable to fraud, 

waste, and abuse, and inefficient 

purchasing actions. In response to 

increased use of purchase cards 

and serious control weaknesses in 

the purchase card program, GAO 

was asked to summarize the 

growth of the purchase card 

program, the control weaknesses 

that led to fraud and misuse of the 

cards, actions taken to tighten 

controls and discipline 

cardholders, and agency actions to 

leverage the government’s buying 

power when using the purchase 

card. 

In a companion report released 

today, GAO made 

recommendations to the Office of 

Management and Budget and 

General Services Administration, 

and the Departments of 

Agriculture, Defense, Interior, 

Justice, Transportation, and 

Veterans Affairs aimed at 

encouraging agencies to begin 

taking steps to achieve savings 

through better management of 

purchase card spending. In 

general, the agencies that 

responded agreed with GAO’s 

findings and recommendations. 

www.gao.gov/cgi-bin/getrpt?GAO-04-717T.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Gregory Kutz at 

(202) 512-9095 or kutzg@gao.gov. 

Highlights of GAO-04-717T, a testimony 

before the Committee on Governmental 

Affairs, U.S. Senate 

April 28, 2004

PURCHASE CARDS

Increased Management and Oversight 

Could Save Hundreds of Millions of 

Dollars 
Page 1 GAO-04-717T 

Madam Chairman and Members of the Committee: 

Thank you for the opportunity to discuss the status of fraud, waste, and 

abuse in the federal government’s purchase card program, improvements 

made, and opportunities for savings. Our testimony is based on findings 

from our report1 released today, which was requested by this Committee, 

Senator Russell Feingold, and Representative Janice Schakowsky, as well 

as on findings from numerous testimonies and reports that we issued in 

recent years2

 that identified significant breakdowns in purchase card 

controls. The report released today looked at whether the six federal 

agencies with the largest purchase card spending have effectively 

leveraged the government’s buying power. Our prior reports and 

testimonies assessed controls and vulnerability to fraudulent, improper, 

and abusive use of the purchase card at the Departments of Defense 

(DOD), Education, and Housing and Urban Development (HUD); the 

Federal Aviation Administration (FAA); and the USDA Forest Service. Our 

work was performed between September 2000 and January 2004 in 

accordance with generally accepted government auditing standards.

For a number of years, the federal government promoted increased use of 

purchase cards primarily for small and routine purchases, and use of 

purchase cards has dramatically increased. The General Services 

Administration (GSA) reported that in fiscal year 2003 more than 325,000 

cardholders used purchase cards to make about 26.5 million transactions 

for over $16.4 billion in goods and services. Purchase card transactions 

include acquisitions at or below the $2,500 micropurchase3

 limit and 

payments on contracts. The benefits of using purchase cards versus 

traditional contracting and payment processes are lower transaction 

processing costs and less administrative effort or “red tape” for both the 

government and the vendor community. 

1

U.S. General Accounting Office, Contract Management: Agencies Can Achieve Significant 

Savings on Purchase Card Buys, GAO-04-430 (Washington, D.C.: Mar. 12, 2004).

2

A list of related GAO products is included at the end of this statement.

3

48 C.F.R. § 2.101 (2003). However, the limit is $2,000 for certain construction costs and 

$15,000 for supplies or services related to the defense against or recovery from nuclear, 

biological, chemical, or radiological attack. 48 C.F.R. § 13.201 (2003).
Page 2 GAO-04-717T 

Our testimony today has five sections:

• growth of purchase card usage in the federal government;

• control weaknesses that led to fraudulent, improper, and abuse 

purchases;

• limited disciplinary actions taken for misuse of the purchase card;

• steps taken to improve purchase card internal controls; and

• governmentwide opportunities to save hundreds of millions of dollars 

by leveraging buying power.

Summary We support the use of a well-controlled purchase card program to 

streamline the federal acquisition processes. However, improved 

management oversight and internal control will be critical to fully realize 

the potential benefits of the purchase card. The purchase card offers 

significant benefits to the federal government from reduced transaction 

processing costs and increased flexibility to make small, routine purchases. 

Recognizing these benefits, federal agencies quickly expanded the use of 

the purchase card program from about $1 billion in fiscal year 1994 to over 

$16 billion in fiscal year 2003. During this substantial growth period, 

hundreds of thousands of purchase cards were issued to employees across 

the federal government, with a peak of 500,000 cards outstanding in fiscal 

year 2000. 

While agency management made significant efforts to promote increased 

use of the purchase card, we and Inspectors General across the 

government determined that purchase card management oversight and 

internal control were ineffective. A weak overall control environment and 

significant breakdowns in key internal control activities left federal 

agencies across the government vulnerable to fraudulent, improper, and 

abusive use of the purchase card. Our data mining, forensic audit followup, and investigations identified cardholder fraud, vendor fraud, and fraud 

due to compromised accounts. We found numerous purchases of personal 

items, such as jewelry, designer leather goods, clothing, stereo equipment, 

food, and entertainment charged to government purchase cards. In 

addition, we identified examples of vendors that have exploited control 

weaknesses to submit fraudulent bills that, in some cases, were not 

detected by cardholders or approving official review and thus were paid by 
Page 3 GAO-04-717T 

agencies. Our work at DOD demonstrated that unless a cardholder has 

been convicted of fraud by a court of law, little disciplinary or 

administrative action is taken against those who have made improper or 

abusive charges. 

As a result of our audits and those conducted by agency Inspectors 

General, executive branch agency focus on the development and 

implementation of effective internal controls has increased substantially. 

For example, the Office of Management and Budget (OMB) directed 

executive branch agencies to increase monitoring of the purchase card 

program and the Congress included language in DOD’s fiscal year 2003 

authorization and appropriation acts requiring DOD and the military 

services to take positive steps to improve the controls over the purchase 

card program. In addition, DOD and other executive branch agencies have 

issued revised purchase card policies and procedures, retrained 

cardholders and approving officials on the proper use of purchase cards, 

and substantially reduced the number of purchase card accounts from 

about 500,000 in September 2000 to about 315,000 in January 2004. These 

actions better articulate what the purchase card can and cannot be used for 

and improve the control environment and the design of key internal 

controls. If implemented effectively, these recent actions should 

significantly reduce the risk of fraudulent, improper, and abusive use of the 

purchase card. It is important to note that while DOD and civilian agencies 

have instituted numerous program improvements, we have not performed 

comprehensive audit and investigative work to verify whether these 

improvements are operating as intended. 

While substantial attention has been focused on internal controls in recent 

years, very little management focus and attention has been placed on the 

aggressive pursuit of savings through use of the purchase card. As 

discussed in our report released today,4

 increased focus on negotiating 

discounts and leveraging the government’s over $16 billion in purchase 

card spending could result in hundreds of millions of tax dollars saved each 

year. Based on our examination of six federal agencies that account for 

over 85 percent of federal government purchase card spending, we found 

that most agencies have not identified and taken advantage of 

opportunities to obtain more favorable prices on purchase card buys. 

However, we did identify examples where agencies effectively negotiated 

discounts for items, such as office supplies and technology purchases. For 

4

GAO-04-430. 
Page 4 GAO-04-717T 

these agencies, notable savings of 8 percent to 35 percent less than GSA’s 

Federal Supply Schedule (Schedule) contracts were achieved. A 

conservative approach indicates that if the agencies that we audited 

obtained discounts of only 10 percent from their major purchase card 

vendors—those vendors where the government spends more than 

$1 million a year—annual savings of up to $300 million might be achieved.5 

These savings could be achieved without sacrificing the ability to acquire 

items quickly or compromising socioeconomic goals. 

Significant Growth of 

the Federal Purchase 

Card Program 

The governmentwide purchase card program was established in 1989 to 

streamline federal agency acquisition processes by providing an efficient 

vehicle for obtaining goods and services directly from vendors without first 

preparing a contract or purchase order. GSA, which manages the purchase 

card program governmentwide, has awarded contracts to banks to provide 

standard commercial charge cards for use by federal employees. Use of 

the purchase card was initially restricted to procurement personnel. The 

Federal Acquisition Streamlining Act of 1994 (FASA) authorized 

cardholders to make micropurchases without obtaining competitive 

quotations, if they considered the price reasonable, and directed that 

purchases be distributed equitably among qualified suppliers.6

 The act also 

provided authority to delegate procurement authority to cardholders who 

are not procurement officials. The Federal Acquisition Regulation (FAR) 

designates the purchase card as the preferred method of making 

micropurchases.7

 

Since the passage of FASA, the dollar value of goods and services acquired 

through the purchase card has increased significantly. As shown in 

figure 1, the amount the government spent with purchase cards increased 

from about $1 billion in fiscal year 1994 to more than $16 billion in fiscal 

year 2003.

5

The six agencies’ spending with major vendors totaled about $3 billion in fiscal year 2002.

6

Pub. L. No. 103-355, § 4301, 108 Stat. 3243, 3346 (Oct. 13, 1994).

7

48 C.F.R. § 13.201(b) (2003). Further, FAR Subpart13.301 establishes guidelines for the use 

and management of the purchase card.
Page 5 GAO-04-717T 

Figure 1: Purchase Card Expenditures—Fiscal Years 1994 to 2003

As the purchase card program expanded during the 1990s, the number of 

cardholders increased in roughly the same proportion as expenditures 

increased. In the late 1990s, senior DOD management mandated the use of 

purchase cards for virtually all micropurchases, and cited an Army Audit 

Agency study that found that the purchase card provided administrative 

cost savings of $92 per transaction compared to using purchase orders. 

DOD estimated that increased use of the purchase card would save DOD 

millions of dollars in annual processing costs and that the savings could be 

used to modernize and maintain our fighting forces. 

GSA—whose mission includes helping federal agencies better serve the 

public by offering acquisition services at the best value—has created 

several tools that can help cardholders obtain more favorable pricing for 

goods and services. The most common of these is the Schedule program, 

which offers discounted prices on a wide range of commercial goods and

$0

$5

$10

$15

$20

FY 94 FY 95 FY 96 FY 97 FY 98 FY 99 FY 00 FY 01 FY 02 FY 03

1.0

1.8

3.0

5.0

8.0

10.1

12.0

13.8

15.2

16.4

Purchases in billions of dollars

Source: GSA.
Page 6 GAO-04-717T 

services from multiple vendors.8 Further, the GSA Advantage on-line 

shopping service allows agencies to compare prices under various 

Schedule contracts, place orders, and make payments—all over the 

Internet. 

Control Weaknesses Led to 

Fraudulent, Improper, and 

Abusive Purchases

We and Inspectors General across the government found ineffective 

management oversight and internal control over purchase card use. A 

weak overall control environment and substantial breakdowns in internal 

control left agencies vulnerable to fraudulent,9

 improper,10and abusive11

charges. The importance of the role of management in establishing a 

strong control environment cannot be overstated. GAO’s Standards for 

Internal Control12 discuss management’s key role in demonstrating and 

maintaining an organization’s integrity and ethical values, especially in 

setting and maintaining the organization’s ethical tone, providing guidance 

for proper behavior, and removing temptations for unethical behavior. 

Agencies Had Not 

Established a Strong 

Control Environment

In establishing their purchase card programs, we found that the federal 

agencies that we audited primarily focused on maximizing the use of the 

purchase card, paying bills quickly, and developing performance measures 

for these activities. Agency purchase card managers did not equally focus 

their attention on establishing a strong control environment that promoted 

adherence to internal control procedures, and they did not develop 

8

Although GSA negotiates discounted prices with various vendors on behalf of government 

agencies, the GSA Inspector General has raised concerns as to whether GSA is negotiating 

the best possible prices. In addition, at the request of this committee we are also assessing 

whether GSA is negotiating the best possible prices.

9

Fraudulent purchases include charges made by cardholders that were unauthorized and 

intended for personal use or unauthorized transactions made by third parties. 

10Improper purchases are those purchases intended for government use, but not for a 

purpose that is permitted by law, regulation, or agency policy.

11Abusive transactions include those that were authorized, but in which the items were 

purchased at an excessive cost (e.g., “gold plated”) or for a questionable government need, 

or both. Abuse can occur even though no law or regulation is violated. Rather, abuse also 

occurs when the conduct of a government organization, program, activity, or function falls 

short of societal expectations of prudent behavior. 

12U.S. General Accounting Office, Standards for Internal Control in the Federal 

Government, GAO/AIMD-00-21.3.1 (Washington, D.C.: Nov. 1999).
Page 7 GAO-04-717T 

performance measures to assess the adequacy of internal control activities. 

Rather, the only real metrics in place for purchase cards were related to the 

timeliness of payments and maximizing purchase card rebates.13 

Consequently, at the agencies we audited, we found an ineffective overall 

internal control environment. Specifically, we found that agencies 

generally did not effectively (1) control the number of purchase cards 

issued, (2) limit approving officials’ responsibilities to a reasonable number 

of purchase cardholders, (3) limit purchase card credit limits to historical 

procurement needs, (4) ensure that cardholders and approving officials 

were properly trained on the proper use of the purchase card, and 

(5) monitor and maintain an infrastructure necessary to effectively oversee 

the purchase card program. 

• Proliferation of Cardholders. Agencies that we audited often did not 

have specific policies and procedures governing the number of cards 

issued or established criteria for identifying employees eligible for the 

privilege of cardholder status. The failure to establish effective policy 

concerning the number of cardholders necessary to accomplish the 

mission and who should be a cardholder resulted in a proliferation of 

purchase cards at DOD and other federal agencies. We reported that 

one DOD unit issued purchase cards to about 36 percent of its 

employees and an FAA office had issued cards to about half of its 

employees. Further, when the number of governmentwide cardholders 

peaked in September 200014 at about 500,000 cardholders, nearly 16 

percent of government employees had a purchase card. In comparison, 

information we obtained from six large defense contractors on their 

purchase card programs showed that the percent of the contractors’ 

employees that were cardholders ranged from about 2 percent to nearly 

4 percent—significantly less than the governmentwide peak of about 16 

percent and the current rate of about 10 percent of government 

employees. 

• Unreasonable Approving Official Span of Control. At the agencies we 

audited, we found that some approving officials were responsible for 

review and approval of excessive numbers of monthly cardholder 

statements. The proliferation of cardholders can create a situation 

13Under federal agency purchase card task orders with credit card issuing banks, agencies 

earn rebates (refunds) based on the sales volume (purchases) and the timeliness of their 

payments. 

14According to General Services Administration data. 
Page 8 GAO-04-717T 

where it is virtually impossible to maintain a positive control 

environment if the agencies do not establish a sufficient number of 

approving officials to review cardholder spending activities. For 

example, we reported that at one DOD unit a significant span of control 

issue existed with one approving official responsible for certifying 

monthly summary billing statements covering an average of over 700 

monthly purchase card statements relating to 1,526 purchase 

cardholders. We also reported that HUD did not have a complete and 

accurate list of approving officials and the cardholders assigned to 

them. The span of control issue, along with effective implementation of 

an approving official review function, are particularly important for the 

integrity of purchase card program because supervisors and, in some 

cases, cardholders themselves, are responsible for authorizing 

purchases, rather than an independent contracting officer as is the case 

under the standard procurement process. Thus, the approving official 

serves as a key control in certifying cardholder purchases. 

• Cardholder Credit Limits Exceed Procurement Needs. The total 

financial exposure of the purchase card program is measured in terms 

of purchase card credit limits. Limiting credit available to cardholders is 

a key factor in managing the purchase card program and in minimizing 

the government’s financial exposure. None of the agencies that we 

audited tied either the cardholder’s or the approving official’s credit 

limit to the unit’s historical spending. Rather, they generally established 

arbitrary credit limits of $10,000 to $25,000. In some instances, we 

found cardholders and approving officials who had credit limits that far 

exceeded historical spending needs. For example, we reported that 

60 Navy cardholders each had credit limits of $9.9 million, and more 

than 2,300 Navy approving officials each had $9.9 million credit limits. 

By managing credit limits, the government’s exposure to fraudulent 

usage of the card is limited. 

• Agencies Lacked Evidence that Purchase Card Officials Were Trained. 

We found a lack of documented evidence that cardholders and 

approving officials were adequately trained. GAO’s internal control 

standards emphasize that effective management of an organization’s 

workforce—its human capital—is essential to achieving results and is 

an important part of internal control. Training is key to ensuring that 

the workforce has the skills necessary to achieve organizational goals. 

While agencies we audited required all cardholders and approving 

officials to receive initial and refresher purchase card training, all of the 

agencies lacked documentation to verify that all cardholders and 
Page 9 GAO-04-717T 

approving officials had received the required training. For example, at 

one FAA field office we found no evidence that 38 percent of the 

cardholders and 67 percent of the approving officials had received 

purchase card training since 1996—a 5-year gap. 

• Insufficient Human Capital Resources. Most agencies that we audited 

had not provided sufficient human capital resources to enable effective 

monitoring of purchases and to develop a robust oversight program. 

The key positions for monitoring purchases are the department-level 

agency program coordinator, the bureau or agency-level program 

coordinator, and the local approving official. At DOD, none of the major 

commands that we audited had agency program coordinators who 

worked full time in that position. This is despite the fact that some 

agency program coordinators were responsible for managing 

procurement programs that incurred between 227,000 and 

380,000 transactions totaling from about $137 million to about 

$268 million annually. We also found that the major commands did not 

provide the subordinate level agency program coordinators and 

approving officials with the time, training, tools, or incentives—also 

human capital resources—needed to perform monitoring 

responsibilities necessary for the operational success of the program. 

The responsibilities of approving officials and many subordinate level 

agency program coordinators fell into the category of “other duties as 

assigned.” 

Key Internal Controls Were 

Ineffective

Key internal controls over the purchase card program were ineffective at 

the agencies we audited. We determined that DOD and the four civilian 

agencies had weaknesses in key transaction-level controls leaving the 

agencies vulnerable to fraudulent, improper, and abusive purchases and to 

the theft and misuse of government property. The problems we found 

primarily resulted from inadequate guidance and a lack of adherence to 

valid policies and procedures. The specific controls that we tested were 

(1) documenting independent receipt and acceptance of goods and 

services, (2) documenting cardholder reconciliation and approving official 

review prior to certifying monthly purchase card statements for payment, 

(3) screening for required vendors, and (4) recording pilferable property in 

accountable records. 

• Independent Receipt and Acceptance of Items Purchased. Most 

agencies that we audited generally did not have evidence documenting 

that someone independent of the cardholder received and accepted 
Page 10 GAO-04-717T 

items ordered and paid for them with a purchase card. That is, the units 

generally did not have a receipt, invoice, or packing slip for the acquired 

goods and services that was signed and dated by someone other than 

the cardholder. As a result, there was no documented evidence that the 

government received the items purchased or that those items were not 

lost, stolen, or misused. For example, we reported that three Navy 

cardholders took advantage of this weakness and fraudulently 

purchased $500,000 of items for themselves before they were caught. 

• Reconciling and Reviewing Monthly Statements. At the agencies we 

audited, we found little evidence that either cardholders reconciled the 

monthly purchase card invoices back to the supporting documents or 

that an approving official reviewed the cardholder’s activity to confirm 

that they had been properly reconciled to the monthly invoices. Our 

testing revealed that documented evidence of adequate cardholder 

reconciliation or approving official review of cardholder transactions 

did not exist for most transactions. We often found that either the 

cardholder and/or the approving official review were simply a “rubber 

stamp.” For example, at HUD, we estimated that $4.8 million of a 

$10.6 million sample population lacked adequate supporting 

documentation for the approving official to determine the validity of the 

purchases. 

• Screening for Required Vendors. Despite govermentwide requirements 

to give priority to certain preferred vendors, we have reported that most 

agencies that we audited did not document whether the necessary 

screening occurred. Due to the lack of documentation, agencies did not 

know the extent to which cardholders acquired items from these 

vendors. Most agencies require that prior to using the purchase card, 

cardholders must document that they have screened all their intended 

purchase card acquisitions for availability from statutory sources of 

supply. These sources of supply include the Federal Prison Industries, 

Inc., known as UNICOR, and vendors qualifying under the JavitsWagner-O’Day Act (JWOD). JWOD vendors are nonprofit agencies that 

employ people who are blind or have other severe disabilities. JWOD 

vendors primarily sell office supplies and calendars that often cost less 

than similar items sold by commercial vendors. Our DOD and civilian 

agency audits found tens of millions of dollars of purchase card 

transactions that did not follow statutory or agency source of supply 

guidelines.
Page 11 GAO-04-717T 

• Accountability for Pilferable Items. All of the agencies we audited had 

difficulty ensuring that sensitive and pilferable property acquired with 

purchase cards were recorded in property records. In addition, none of 

the agencies could locate every property item invoiced in our statistical 

samples. Because agency officials could not provide conclusive 

evidence that missing property was in the possession of the government, 

they could not determine whether these items were lost or stolen. For 

example, the Department of Education could not locate 241 personal 

computers and related equipment valued at $261,500 acquired using 

purchase cards. GAO’s Standards for Internal Control state that 

accountable property should be recorded in property records as it is 

acquired. Accountable property obtained with purchase cards includes 

items that can be easily pilfered, such as computers and related 

equipment, and cameras. Entering such items in the property records 

and performing periodic inventories are important steps to help assure 

accountability and financial control over these assets and deter theft or 

improper use of government property. 

Limited Disciplinary 

Actions Taken by DOD 

As previously mentioned, at the request of the House and Senate Defense 

Authorization and Appropriations Committees, we followed up with DOD 

to determine what disciplinary or administrative actions were taken against 

the cardholders we had cited in our examples of fraudulent, improper, or 

abusive purchases in our DOD purchase card reports and testimonies. 

Specifically, we listed 51 examples of cardholders who had used the 

government purchase card to make fraudulent or potentially fraudulent 

purchases and 120 examples of cardholders who made improper and 

abusive or questionable purchases. We reported that when a court of law 

determined that a cardholder fraudulently used the purchase card, all the 

military services generally took strong disciplinary actions (such as, 

assessed fines, and in the case of uniformed personnel, sentenced the 

individual to jail/confinement). We also found that the military services 

either took strong disciplinary action or were actively investigating the 

cases we reported as potentially fraudulent. For example, our two Navy 

reports identified 26 fraudulent and potentially fraudulent transactions 

totaling more than $1,342,000. The Navy reported that in response, it fired 

six cardholders, reduced the grade of others, confined several uniformed 

serviceman for periods of 14 to 60 months, and required repayment to the 

government of over $460,000. Other actions taken on fraudulent or 

potentially fraudulent transactions included suspending or revoking 

purchase card privileges, requiring repayment to the government for the 
Page 12 GAO-04-717T 

cost of the items obtained, returning items obtained to the government, and 

issuing written reprimands. 

However, the military services generally did not take disciplinary or 

administrative actions against the 120 cardholders associated with our 

examples of improper, abusive, or questionable transactions. As shown in 

table 1, using our examples of problem transactions, DOD disciplined only 

20 of the 120 cardholders we cited as examples in our reports. DOD 

revoked the purchase card privileges of 8 of the cardholders we cited, gave 

verbal or written reprimands to 3 cardholders, required the items obtained 

by 7 cardholders to be returned to the government, and gave 2 cardholders 

verbal reprimand and required them to return the item to the government. 

DOD did not take any action against 94 of the 120 examples that we 

identified. We noted that DOD required 33 of these 94 cardholders to take 

purchase card training. Because all cardholders are required to take 

periodic training, we did not consider retraining to be a disciplinary action.

Table 1: Disciplinary Actions Taken against DOD Cardholders Who Made Improper, 

Abusive, or Questionable Transactions

Source: GAO analysis of responses provided by Army, Navy, and Air Force.

Table 2 shows examples of abusive and wasteful items identified in our 

statistical samples, data mining, and forensic auditing, that government 

cardholders charged to their purchase cards. It is important to note that 

none of the cardholders were disciplined for using tax dollars to pay for 

personal items. 

Type of disciplinary action taken Total

Value of transactions reported by GAO $3,062,445

Number of transactions reported by GAO 120

Type of Disciplinary Action

Give item to government or repay for cost of improper, abusive, or 

questionable charge 7

Written or verbal reprimand 3

Credit card revocation or suspension 8

Verbal reprimand and required to return the item to the government 2

Total disciplinary actions 20

No disciplinary actions 94

Still under review/investigation or written policy authorizing purchase 6
Page 13 GAO-04-717T 

Table 2: Examples of Abusive and Wasteful Items Obtained with a Purchase Card 

Reported By GAO

Source: GAO analysis of agency purchase card invoices and supporting documentation.

Steps Taken to 

Improve Management 

of the Purchase Card 

Program 

In response to the reported breakdowns in internal controls and 

fraudulent, improper, and abusive purchases, the Office of Management 

and Budget (OMB), Congress, DOD, and civilian agencies have taken 

numerous actions to improve management oversight and internal controls 

over the government purchase card program. Specifically, OMB requested 

all agencies to review the adequacy of internal controls for purchase card 

expenditures, prepare separate remedial action plans for control 

weaknesses, and submit quarterly reports on purchase card activity. The 

Congress directed DOD to improve the management of the purchase card 

program in the fiscal year 2003 DOD authorization and appropriations acts. 

In response to OMB and congressional actions and GAO and Inspectors 

General reports, DOD and civilian agencies updated policies and 

procedures to strengthen purchase card program controls.

Item purchased

Justification provided to GAO auditors and 

investigators

Action 

taken 

Coach brief cases, $400-

$500 each

More durable than standard briefcases. None 

Mounted deer head Educate airmen about local deer population. None 

$250 Louis Vuitton 

designer folios 

Personal preference. None 

$100 Dooney and Bourke 

designer PDA cases 

Personal preference. None 

Luggage DOD personnel were traveling on official business. None 

Garment bags DOD personnel were traveling on official business. None 

$224 leather backpack To hold items while traveling. None 

$300 Bose headset Traveler would be more rested after long flights. None 

$500 Bose wave radio Cardholder wanted a radio for his office. None 

Wine Authorized by a “competent authority in the course 

of execution of a highly classified compartmented 

program.”

None 

Cigars Gifts to be given to very important people. None 

Leather bomber jackets Personal preference. None 

Ski clothing A DOD civilian was traveling to cold weather area. None 

Oakley sun glasses Entitlement. None 

$200 Lego toy robots Teach Navy engineers about robotics. None 
Page 14 GAO-04-717T 

Office of Management and 

Budget Actions

On April 18, 2002, OMB issued a memorandum to executive branch 

agencies stating that the fraudulent and unauthorized use of government 

credit cards identified by GAO and Inspectors General was unacceptable 

and required prompt and effective remedial action. In the memorandum, 

OMB requested that each agency review the adequacy of internal controls 

for purchase card expenditures and prepare separate remedial action plans 

for its purchase and travel card programs. The remedial action plans were 

to highlight the problems each agency identified, the internal controls that 

will be used to manage risk associated with these programs (such as, 

management oversight and review, authorized spending limits, and 

training), and include an examination of the number of cards issued at the 

agency. OMB recommended that agencies deactivate all current cards and 

reactivate them selectively for a smaller number of cardholders, based on 

demonstrated necessity. According to the OMB memorandum, if the 

program was to continue, agencies must improve the internal control over 

the purchase card program. In October 2002, OMB issued a memorandum 

requiring federal agencies to prepare and submit quarterly reports on 

purchase card activity beginning with the first quarter of 2003.

Legislative Actions The Congress included in DOD’s fiscal year 2003 authorization and 

appropriations acts15 requirements for DOD to take specific actions to 

improve the management of the purchase card program, in particular, the 

weaknesses we identified. Specifically, these acts required DOD to (1) limit 

the number of purchase cards, (2) train purchase card officials, (3) monitor 

purchase card activity, (4) review purchase card activity to better aggregate 

purchases and obtain lower prices, (5) establish guidelines and procedures 

to discipline cardholders who misuse the purchase card, and (6) assess the 

credit worthiness of cardholders. By the end of fiscal year 2003, DOD and 

the military services initiated actions to address these requirements. DOD 

made significant progress by taking the following steps: 

• DOD reduced the total number of purchase cards from about 239,000 in 

March 2001 to about 135,000 in January 200416 and established a 

maximum ratio of cardholders to approving officials of 7 to 1. 

15Bob Stump National Defense Authorization Act for Fiscal Year 2003, Pub. L. No. 107-314, 

116 Stat. 2458 (Dec. 2, 2002) and Department of Defense Appropriations Act, 2003, Pub. L. 

No. 107-248, 116 Stat. 1519 (Oct. 23, 2002).

16According to GSA.
Page 15 GAO-04-717T 

• DOD made available several on-line, self-paced purchase card courses 

on its Defense Acquisition University Web site. DOD’s on-line 

curriculum included courses for cardholders and approving officials on 

regulatory requirements and other guidelines related to the purchase 

card program, and a GSA module aimed at providing advanced training 

for agency program coordinators who have completed basic training on 

the purchase card program. 

• DOD also increased its monitoring of purchase card transactions. 

DOD’s Office of the Inspector General and the Navy prototyped a data 

mining capability to screen for and identify high-risk purchase card 

transactions (such as potentially fraudulent, improper, and abusive use 

of the cards, including prohibited purchases) for subsequent 

investigation. On June 27, 2003, the DOD Inspector General issued a 

report17 summarizing the results of an in-depth review of purchase card 

transactions made by 1,357 purchase cardholders. Using data mining 

technology, the report identified 182 cardholders who may have 

inappropriately or fraudulently used their purchase cards. 

In several other cases DOD and the military services have issued policies 

and guidelines for implementing the legislative mandates. However, 

sufficient time has not passed to implement the legislative mandate. For 

example: 

• DOD issued separate disciplinary guidelines18 for civilian and military 

employees intended to ensure that management emphasis is given to the 

important issue of personal accountability. However, DOD told us in 

response to our December 2003 report,19 DOD does not intend to 

monitor whether commanders are consistently applying those 

guidelines. 

• DOD established a senior focus group consisting of acquisition, financial 

management, and general counsel executives to determine how to 

17Department of Defense, Office of the Inspector General, Summary Report on Joint 

Review of Selected DOD Purchase Card Transactions, D2003-109 (Washington, D.C.: 

June 27, 2003). 

18Military employees are subject to the Uniformed Code of Military Justice.

19U.S. General Accounting Office Purchase Cards DOD: Steps Taken to Improve DOD 

Program Management, but Actions Needed to Address Misuse, GAO-04-156 (Washington, 

D.C.: Dec. 2, 2003.).
Page 16 GAO-04-717T 

implement the requirement to evaluate an individual’s credit worthiness. 

The focus group concluded that there are conflicts between 

implementing this legislation through the use of credit checks and the 

Fair Credit Reporting Act. The department is pursuing an alternative 

solution that would rely on a self-certification process by prospective 

cardholders and is researching the legality and practicality of the 

alternative. 

DOD Action on GAO 

Recommendations 

Recently, we reported20 that the Army, Navy, and Air Force have either 

completed or initiated actions to implement nearly all of the 

109 recommendations we made to improve the management of the 

purchase card program. The recommendations that the services told us 

they have implemented closely tie to requirements in the DOD fiscal year 

2003 authorization and appropriation acts. However, DOD had not fully 

implemented the recommendations dealing with leveraging purchase card 

buying power; establishing servicewide databases for data mining; 

investigating suspected and known fraud; and linking cardholder, 

approving official, and agency program coordinator performance 

appraisals to performance standards encompassing purchase card goals 

and objectives. The Air Force planned to complete action on all of the 

recommendations by the spring of 2004. The Army and the Navy did not 

provide target dates for completing actions that are underway to address 

our recommendations.

Agencies Can Achieve 

Significant Savings on 

Purchase Card Buys 

As we discuss in the report released today, substantial attention has been 

focused on internal controls in recent years, but very little management 

focus and attention has been placed on the aggressive pursuit of savings 

through use of the purchase card. 21 Although some agencies have begun to 

take actions to achieve such savings through their purchase card programs, 

most have not identified nor taken advantage of opportunities to obtain 

more favorable prices from their major purchase card vendors—

opportunities that could yield hundreds of millions of dollars in savings. A 

conservative approach indicates that the agencies we reviewed—

Agriculture, Army, Navy, Air Force, Interior, Justice, Transportation, and 

20GAO-04-156. 

21GAO-04-430.
Page 17 GAO-04-717T 

Veterans Affairs—might be able to achieve annual savings on the order of 

$300 million. In our view, these savings could be achieved without 

sacrificing the ability to acquire items quickly or compromising 

socioeconomic goals. 

Agencies Generally Have 

Not Taken Advantage of 

Opportunities to Obtain 

Savings

Although we found some initiatives under way to obtain vendor discounts 

from major purchase card vendors, agencies generally had not seized 

opportunities to obtain more favorable prices on purchase card buys. 

Agency efforts to obtain more favorable prices for purchase cardholders 

had generally been limited to a few agencywide agreements with major 

vendors. Further, training for cardholders usually focused on internal 

controls and regulatory policies and did not provide practical information 

about steps cardholders can take to get better prices. As a result, 

cardholders often paid higher prices than necessary. The successful 

initiatives taken within some agencies demonstrate that, if agencies 

negotiated effective discount agreements with major purchase card 

vendors and improved communications to cardholders about how to obtain 

more favorable prices, significant savings could be realized. Some of our 

major findings regarding this issue include:

• Scope and Coverage of Negotiated Discount Agreements Varied. We 

found a wide variation in the number of agencywide discount 

agreements that the agencies we reviewed had negotiated with their 

major purchase card vendors. For example, Veterans Affairs had 

negotiated agencywide discount agreements with 37 of its 196 major 

purchase card vendors—the largest number of any of the agencies 

reviewed. In contrast, Transportation’s senior procurement executive 

told us his agency had no discount agreements that could be used 

agencywide. 

Even where agencies had agreements in place, the agreements did not 

cover all the products and services cardholders were buying. For 

example, Veterans Affairs agreements that we examined covered single 

products or product types—specimen containers, bandages, or 

washcloths—instead of the vendor’s full product line. Estimated sales 

for these agreements were as low as $27,000. According to agency 

officials, the intent of the agreements was to standardize specific 

products, and the agency has now identified its highest dollar value 

products for standardization. 
Page 18 GAO-04-717T 

• Most Agency Guidance and Training Did Not Provide Practical 

Information on Obtaining Favorable Pricing. Each of the agencies we 

reviewed had developed guidance and training programs for their 

cardholders that focused on regulatory policies and internal controls 

intended to prevent misuse of the purchase card. However, most of the 

guidance and training programs did not provide cardholders with 

practical information to help them get better pricing by using GSA 

Schedule contracts or agency discount agreements. Some locations 

found more practical training beneficial. For example, the Air Force’s 

Air Mobility Command developed an extensive briefing that highlights 

the importance of comparison shopping and is providing hands-on 

training to show cardholders how to order from Schedule contracts. 

Command officials told us that in addition to providing cardholders with 

practical tools to help them be effective buyers, the briefings and 

training increased cardholder awareness of the importance of 

comparison shopping.

• Cardholders Paid More Than Necessary. Dun and Bradstreet’s analysis 

of fiscal year 2002 Interior transactions, conducted on our behalf, 

illustrates that cardholders frequently paid more than necessary. For 

example, the company analyzed Interior purchases from three office 

supply vendors that provided product descriptions along with their 

purchase card billing information. This analysis showed that ink 

cartridges were the most frequently purchased product. For one specific 

model of ink cartridge, 411 of 791 purchases were made at prices higher 

than the GSA Schedule prices the vendors offered, indicating that 

cardholders had generally not taken advantage of discounts available 

through Schedule contracts. The prices paid for the same cartridge 

model ranged from $20.00 to $34.99.

Some cardholders appeared not to accept any responsibility for getting 

reasonable prices. For example, a Transportation cardholder paid 

about 20 percent more than the GSA Schedule contract price for office 

supply items, even though he admitted he knew that the vendor had a 

Schedule contract. An Agriculture cardholder, who paid about 

13 percent more for cellular telecommunications service than the GSA 

contract price, told us that her only role in the transaction was to pay 

the monthly bill for the cell phone user. 

A number of other cardholders purchased items that were not available 

through the vendor’s Schedule contract and did not consider whether 

products that met their needs were available from other vendors that 
Page 19 GAO-04-717T 

offered discounted Schedule prices. For example, an Army cardholder 

purchased word-processing software from an office supply vendor’s 

retail store and did not consider whether other vendors might offer 

discounts on the same software through their Schedule contracts. 

Experience at Some 

Agencies Suggests That 

Significant Savings Are 

Possible

Several agencies reported significant savings from their initiatives to 

leverage buying power by negotiating discount agreements with major 

purchase card vendors, suggesting that the potential exists for significant 

savings governmentwide. For example, Interior recently negotiated several 

agencywide discount agreements for information technology products. 

These agreements provided for savings ranging from 20 percent to 

35 percent for laptop computers. Sales under Agriculture’s discount 

agreement for office supplies totaled $15.4 million during fiscal year 2003, 

and the agency achieved savings of $1.8 million, or about 10 percent off 

Schedule prices. While the scope of our work did not include developing a 

governmentwide estimate of the potential savings from leveraging 

purchase card buying power, these examples indicate that the potential for 

savings is significant. A conservative approach indicates that, if these 

agencies were to achieve savings of just 10 percent on their purchase card 

expenditures with major vendors, annual savings of $300 million could be 

realized. 

Agency officials expressed concerns that achieving these savings might 

require them to sacrifice the ability to acquire items quickly or compromise 

socioeconomic goals. Although agency officials consistently identified 

these challenges, our review suggests that the challenges are not 

insurmountable, as evidenced by the individual agency initiatives to 

address them. The Air Mobility Command, for example, is supporting small 

businesses while generating savings. The Command contacted local 

suppliers—many of which were small businesses—to determine what 

customary trade discounts they were willing to extend to government 

purchase cardholders and provided this information to the cardholders. 

Cardholders were encouraged to request the applicable discount, typically 

about 10 percent, when dealing with these suppliers.

Concluding Remarks We support the use of a well-managed and controlled purchase card 

program in the federal government. To date, the purchase card has 

provided significant benefits in reduced transaction processing costs and 

increased flexibility for agencies to meet their procurement needs. 
Page 20 GAO-04-717T 

However, ineffective management oversight and control have prevented 

the government from fully realizing the benefits of using the purchase card. 

Although significant progress has been made in improving management 

focus and the design of internal controls, it is too early to tell whether 

controls are in place to provide reasonable assurance that fraudulent, 

improper and abusive purchases are being minimized. The federal 

government has also not effectively leveraged the $16 billion a year buying 

power of its purchase card activity. With the serious fiscal challenges 

facing our nation, it is important that the hundreds of millions of dollars of 

potential savings available through better management of the purchase 

card program be realized. 

Madam Chairman, Members of the Committee, this concludes our prepared 

statement. We would be pleased to answer any questions that you may 

have. 

Contacts and 

Acknowledgments

For future contacts regarding this testimony, please contact Gregory D. 

Kutz at (202) 512-9095, David E. Cooper at (202) 512-4841, and John J. Ryan 

at (202) 512-9587. Individuals making key contributions to this testimony 

included Mario Artesiano, Francine DelVecchio, Bonnie Derby, Gayle 

Fischer, John Kelly, Michele Mackin, Monty Peters, Alana Stanfield, 

Edward Tanaka, and Bernard Trescavage.
Page 21 GAO-04-717T 

Related GAO Products

Products concerning purchase card internal controls:

Purchase Cards: Steps Taken to Improve DOD Program Management, but 

Actions Needed to Address Misuse (GAO-04-156, Dec. 2, 2003).

Audit Guide: Auditing and Investigating the Internal Control of 

Government Purchase Card Programs (GAO-04-87G, Nov. 1, 2003).

Forest Service Purchase Cards: Internal Control Weaknesses Resulted in 

Instances of Improper, Wasteful, and Questionable Purchases (GAO-03-

786, Aug. 11, 2003).

HUD Purchase Cards: Poor Internal Controls Resulted in Improper and 

Questionable Purchases (GAO-03-489, Apr. 11, 2003).

Data Mining: Results and Challenges for Government Program Audits 

and Investigations (GAO-03-591T, Mar. 25, 2003).

FAA Purchase Cards: Weak Controls Resulted in Instances of Improper 

and Wasteful Purchases and Missing Assets (GAO-03-405, Mar. 21, 2003).

Purchase Cards: Control Weaknesses Leave the Air Force Vulnerable to 

Fraud, Waste, and Abuse (GAO-03-292, Dec. 20, 2002).

Purchase Cards: Navy Vulnerable to Fraud and Abuse but is Taking 

Action to Resolve Control Weaknesses (GAO-03-154T, Oct. 8, 2002).

Purchase Cards: Navy Is Vulnerable to Fraud and Abuse but Is Taking 

Action to Resolve Control Weaknesses (GAO-02-1041, Sept. 27, 2002).

Purchase Cards: Control Weaknesses Leave Army Vulnerable to Fraud, 

Waste, and Abuse (GAO-02-844T, July 27, 2002).

Purchase Cards: Control Weaknesses Leave Army Vulnerable to Fraud, 

Waste, and Abuse (GAO-02-732, June 27, 2002).

FAA Alaska: Weak Controls Resulted in Improper and Wasteful Purchases 

(GAO-02-606, May 30, 2002).

Government Purchase Cards: Control Weaknesses Expose Agencies to 

Fraud and Abuse. (GAO-02-676T, May 1, 2002).
Related GAO Products

Page 22 GAO-04-717T 

Education Financial Management: Weak Internal Controls Led to 

Instances of Fraud and Other Improper Payments (GAO-02-406, Mar. 28, 

2002).

Purchase Cards: Control Weaknesses Leave Two Navy Units Vulnerable to 

Fraud and Abuse (GAO-02-506T, Mar. 13, 2002).

Purchase Cards: Control Weaknesses Leave Two Navy Units Vulnerable to 

Fraud and Abuse (GAO-02-32, Nov. 30, 2001).

Purchase Cards: Control Weaknesses Leave Two Navy Units Vulnerable to 

Fraud and Abuse (GAO-01-995T, July 30, 2001).

Products concerning strategic purchasing:

Contract Management: Agencies Can Achieve Significant Savings on 

Purchase Card Buys (GAO-04-430, Mar. 12, 2004).

Contract Management: Restructuring GSA’s Federal Supply Service and 

Federal Technology Service (GAO-04-132T, Oct. 2, 2003).

Best Practices: Improved Knowledge of DOD Service Contracts Could 

Reveal Significant Savings (GAO-03-661, June 9, 2003).

Contract Management: Taking a Strategic Approach to Improving Service 

Acquisitions (GAO-02-499T, Mar. 7, 2002).

Best Practices: Taking a Strategic Approach Could Improve DOD’s 

Acquisition of Services (GAO-02-230, Jan. 18, 2002).

(192129)
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